SURINAM: POLITICAL CURRENTS AND UNITED STATES ALUMINUM INTERESTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R00967A000300030004-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 16
• Document Creation Date: December 20, 2016
• Document Release Date: July 11, 2006
• Sequence Number: 4
• Publication Date: June 4, 1971
• Content Type: MEMO

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Secret
MEMORANDUM
OFFICE OF
NATIONAL ESTIMATES
Surinam: Political Currents and United States
Aluminum Interests
Secret
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CENTRAL INTELLIGENCE AGENCY
OFFICE OF NATIONAL ESTIMATES
SUBJECT: Surinam: Political Currents and United States
Aluminum Interests*
IN this paper we take a closer look
at Surinam, a small nearby mainland country which to date has
been a calm, capitalistic oasis, despite potential difficul-
ties. The Memorandum assesses the prospects over the next
year or two for the large US investment in Surinamese bauxite,
alumina, and aluminum production. Special attention is given
to the impact on Surinam of the imminent nationalization of
bauxite investments in Guyana, latent racial frictions, and
the pressures coming to bear on Surinam's leaders to provide
more benefits to the populace.
* This Memorandum was prepared by the Office of National
Estimates and coordinated within the CentraZ InteZZi-
gence Agency.
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1. Surinam is tucked away on the northeast shoulder of
South America. Its 400,000 people are isolated from the
Latin countries of the continent by geography, race, language,
and cultural traditions. The country is one of the three in-
ternally autonomous members of the Kingdom of the Netherlands.?/
Long association with the Dutch has given the country a tradi-
tion of public order and slow but systematic development.
Surinam's major domestic problems arise from tensions in its
multiracial society and the recent slowdown in economic growth.
Racial frictions stem from the rivalry between the two main
groups, the Creoles (blacks and mixed blacks) and the East
Indians.' Up to now the blacks and East Indians have lived
together with only minor racial disturbances. This has been
due in part to enlightened political leadership and in part
Z/ Surinam is autonomous in internal politics, but is sub-
ordinate to the Kingdom government in all defense and
foreign affairs and major "domestic" decisions which
affect the Kingdom as a whole. Surinam is an Associate
Member of the European Common Market. It is not a mem-
ber of any regional Latin American organization.
2/ The 1964 census Listed the racial composition of the
population as follows: Creoles 39%, East Indians 38%,
Indonesians 17%, Chinese 2%, European 2%, Amerindians
Z%, and unknown Z%. Included in this melange are
27,000 Bush negroes and 4,000 Amerindians living in
a tribal society in the interior.
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to the fact that East Indians have been rural dwellers while
the blacks have concentrated in the city. Tensions are in-
creasing, however, as the East Indians begin to move into the
cities; this is clearly the most ominous national problem.
2. Surinam is one of the few underdeveloped nations
that has a completely integrated bauxite-alumina-aluminum
operation. It ranks second only to Jamaica as a producer and
exporter of bauxite and alumina in the Caribbean, and it pos-
sesses considerable unexploited reserves. Constructed largely
during the 1960s, the industry accounts for about 30 percent of
Surinam's GDP. In 1969 bauxite, alumina, and aluminum made up
approximately 90 percent of exports.
3. US interest in the country is centered almost en-
tirely on bauxite. US aluminum producers are concerned that
other leading bauxite producing countries in the Caribbean may
follow the lead of Guyana,which is preparing to nationalize
its major bauxite company.* About 80 percent of the total US
Prime Minister Forbes Burnham has moved to nationalize the
Demerara Bauxite Company, a subsidiary of the Aluminum Com-
pany of Canada and the major producer of bauxite in Guyana.
(Reynolds Metals, a US company, also has holdings in the
country.) Terms are still being negotiated, but takeover
by the Burnham government now seems likely to occur some
time in July or August.
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bauxite consumption in 1969 was imported, almost all of it
from the Caribbean. Approximately 23 percent of this amount
was imported from Surinam.* Private US investment in the
country is now close to $200 million (book value), most of it
representing properties of the Surinam Aluminum Company
(SURALCO), a subsidiary of the Aluminum Company of America
(ALCOA). SURALCO has developed extensive exploration sites
and has constructed an alumina refining plant. It has also
constructed an aluminum smelter and financed a hydro-electric
facility on the Surinam River. Other US investors have re-
cently concluded agreements with the government for bauxite
and timber exploration which when completed could put total
US investment well over $300 million.
.4. The pending nationalization of the leading bauxite
property in Guyana has not influenced Surinam's Minister-
President Jules Sedney to follow suit. Sedney, an economist,
appears convinced that the solution to Surinam's economic prob-
lems will depend largely on foreign capital. Sedney has
There are other sources of bauxite likely to be developed
by US companies over time, e.g., in Australia and Guinea,
but these sources are currently more costly to exploit,
compared to Surinam.
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recently submitted a bill calling for higher corporate tax
rates.* There is also increasing pressure for government par-
ticipation in new undertakings. But the government still pro-
vides a fairly attractive climate for foreign investment. Like
Jamaican Prime Minister Shearer, Sedney is confident that his
country will benefit by the contrast to Guyana'a recent move
against foreign investment in bauxite. In reaction to events
in Guyana, he has been in contact with Shearer and both have
taken firm positions against nationalization. Sedney is never-
theless highly sensitive to the impact Burnham's scheme may have
on domestic politics. He is acutely aware that if the Surin-
amese public comes to believe that the Guyanese experiment is
successful, he will be faced with strong pressures to follow
the same course.
5. Political life in Surinam is drawn along racial
lines, and therein lies the source of potential political
SURALCO, whose rates are not touched by this Legislative
proposal, pays a corporate income tax of only 30 percent
of profits. A recent agreement with Reynolds calls for
a tax rate of 36 percent until L989, at which time it will
be increased to 40 percent. Each year thereafter the rate
will increase by one percent until a maximum of 45 percent
is reached. In addition, the agreement gives the govern-
ment the option of buying a 50 percent share of new under-
takings.
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instability. The elections of October 1969 resulted in a
coalition government of the East Indian United Hindu Party
(VHP) and the black-dominated National Progressive Party (PNP).
Together they control 27 of the 39 seats in the unicameral
legislature. Although the VHP won 18 seats, its leader,
Jagernath Lachmon, declined to seek the Minister-Presidency
or a cabinet position, preferring instead to remain as the
power behind the scene. He probably calculated that the time
had not yet arrived when an East Indian could occupy the
Minister-Presidency without arousing racial tensions in the
black community. Whatever his motives, he supported the
appointment of Jules Sedney, the black leader of the PNP, as
Minister-President, Although East Indians now outnumber
blacks, the latter are a majority in the legislature and, as
in Guyana, hold the levers of political power. The current
political relationships are not very firm, however, nor is
Sedney?s grip on power very secure. Hence further shifts in
political alignment are likely.
6. Adding to his political difficulties, Sedney faces
some sticky economic problems. The government is suffering
growing budgetary strains. The budget deficit for 1969 was
about 20 percent of expenditures. It was probably about 30
percent in 1970 and is expected to be the same in 1971. An
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inefficient tax collection system, a swollen public payroll
(25 percent of a labor force of 100,000), and increasing
public investment are largely responsible for the growing
deficit. The Netherlands government is expected to cover
the 1971 deficit and to continue to supply a similar level
of support in the future.* But it is also putting pressure
on Sedney to clean up his fiscal household. Specifically,
the Realm is urging him to reduce the government work force
and hold the line on wages. These remedies -- particularly
a reduction of government workers -- would be likely to spark
resentment among Sedney's sensitive black constituency which
comprises the bulk of urban labor. Thus, though the govern-
ment has put a freeze on government hiring and has raised
taxes on a variety of imported and luxury items, Sedney is
reluctant to take any steps to slim down the public work force.
7. His hesitation is understandable. Government workers
have gone without a raise since mid-1969 and are now threaten-
ing to strike. It is unlikely that the government employees'
Between 1957-1967 the Netherlands Government contributed
$ZZ5.5 million to Surinam. A Five Year Plan (2968-2972)
calls for Dutch aid of $64.2 million with almost double
that amount projected for the second Five Year Plan
(2973-Z977). The Netherlands derives little commercial
benefit from Surinam in relation to its costs.
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union can be put off indefinitely, but it is difficult to see
where Sedney will find the money to meet the union's demands
for a 25 percent pay increase. The union, which has supported
the regime, is a significant political force in Surinam and
Sedney is acutely aware that it was a teachers' strike which
led to the ouster of the predecessor government in 1969.
8. The situation of the government workers is only a
specific example of Surinam's general economic bind. Between
1954-1967 the country enjoyed a high rate of economic growth.
This was due to the exploitation of Surinam's considerable
bauxite reserves and the development of its infrastructure at
a rapid pace under the heavy influx of private foreign invest-
ment and large transfers of economic aid, principally from the
Netherlands. Since 1967, however, the rate of growth of GNP
has dropped dramatically. There has been a sharp decline in
investment in the bauxite sector, and only a moderate rise in
other fixed investments. This slower growth rate has been
accompanied by strong upward pressures on prices and wages.
Since 1967 prices, led by foodstuffs, have increased at a rate
of six percent per year due in large part to poor harvests and
an inadequate distribution system. Unemployment has also been
on the rise. The employment boom that came from the construc-
tion of infrastructure projects and bauxite facilities has
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since tapered off, with nothing to replace it. The government
is unable to take any more of the jobless on its rolls, and
unemployment now stands at about 20 percent of the labor force.
9. Although a government employees' strike would have
economic motivation, political discontent will provide addi-
tional impetus. Sedney's PNP seems to be losing some grass
roots and youth support to opposition parties, largely because
of its cooperation with the East Indians. The opposition con-
sists principally of the National Party of Surinam, the small
but influential Nationalistic Republic Party, some PNP defec-
tors and a sprinkling of Black Power militants. All of these
elements are influential in the leadership of the unions, in-
cluding the government employee unions. Recently, there have
been indications of increasing cooperation between the two
opposition parties. The possibility is growing that they will
attempt to merge and form a single party large enough to com-
pete with the other major parties in the 1973 elections.
10. There is no avowed communist group involved in all
this. Edward Bruma, the country's most powerful union leader
and head of the Nationalistic Republic Party, professes ad-
miration for communist Cheddi Jagan of Guyana, but his poli-
tical following is small and he holds his party's only seat
in the legislature. In the past Bruma has espoused
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ultranationalistic policies, including immediate independence
for Surinam, but recently he has backed away from this position.
11. For the most part independence has not been an emo-
tional issue in Surinam, although it is in the back of everyone's
mind. The problem is not whether to seek independence, but when.
The government of the Netherlands has already decided in prin-
ciple to grant Surinam its independence within a 5-7 year time
frame. The Dutch want the process to be orderly. The Sedney
government favors the Dutch timetable, presumably reflecting the
dominant sentiment in the black community. The blacks cite the
need to overcome budgetary problems, the lack of an adequate
government structure, and the need to develop an indigenous de-
fense force as arguments against immediate independence. Here,
too, racial considerations enter the picture: East Indians also
favor the present government policy, calculating that by the mid-
1970s their growing numbers will put them in an even better posi-
tion to win elections. Only a handful of militant blacks are
demanding immediate separation from the Realm.
12. Over the next several years, unresolved economic and
racial problems are likely to continue to dominate the scene.
New private investments during this period will not be suffi-
cient to provide immediate relief to the country's more pressing
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economic problems. Political tensions will persist, as opponents
of the government try to capitalize on racial differences and
economic troubles. To date, however, these tensions have pro-
duced only minor disorders. What violence that does occur is
likely to be directed against the government on local social and
economic issues rather than against outside business interests.
US investment is unlikely to become a primary target. There is
relatively little anti-American sentiment and little interest in
economic nationalism; US firms generally enjoy a good reputation
in the country.
13. The 800-man Surinam police force can handle minor dis-
orders. It is backed by a Dutch Army of some 1,000 troops which
should be capable of maintaining order under most likely circum-
stances. And in extremis there is a larger Dutch force in
Curacao which could be brought onto the scene. The security
picture will not be so bright over the next few years, however,
as the Dutch Army is gradually replaced by a Surinamese Army
now being formed.
14. Between now and independence, there is little likeli-
hood that the government will move to nationalize foreign in-
vestments. The political leadership now in power or likely to
gain power in this period will probably want to maintain a high
rate of foreign investment and will continue to promote a
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favorable investment climate -- especially if, as seems likely,
the Dutch use their considerable leverage to encourage them to
.do so. Domestic economic pressures are already forcing the
government to tighten its terms for investment, however, and
further demands on foreign companies seem likely. But these
demands will probably stem from a real need for revenue rather
than from impulses toward economic nationalism. On balance,
over the next several years the terms for foreign investors are
likely to remain attractive, particularly so when contrasted
with the increasingly nationalistic policies of most Latin
American countries.
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This piper. ass tar as we know the Agency's first
an Surinam, responds to your mcpr !ion of interest
same time alp. Apart from the desk man at State,
we have seat It to t3S.IB a cies only.
FORM
AUGN 54 101 WHI1CH RELACES
BEM US10-101
ED.
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